Mortgage giant Freddie Mac bet against homeowners: report

By Agence France-Presse
Tuesday, January 31, 2012 9:23 EDT
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US-owned mortgage giant Freddie Mac is holding billions of dollars in investments that only pay off if homeowners remain locked into high interest rates, a media investigation has found.

The report by the ProPublica website and National Public Radio on Monday said the mortgage giant began dramatically increasing such bets in 2010 at the same time it was making it more difficult for homeowners to refinance.

It said the trading arm of the firm is in theory “walled off” from its housing finance activities, which by government charter are to be directed at making home loans more accessible.

The Federal Housing Finance Agency (FHFA), which supervises Freddie, said in a statement to ProPublica that it had ordered a halt to such investments — known as “inverse floaters” — in December, following an internal assessment.

The assessment “had “identified concerns regarding the controls, including risk management,” it said in a statement published in full by ProPublica.

The statement said inverse floaters make up $5 billion out of a portfolio of $650 billion, and did not have any impact on its refinance program.

White House spokesman Jay Carney expressed concern about the report during a press conference on Monday.

“We saw those reports and they certainly raise concerns. As you know, this is an independent institution with independent governance, so we don’t make those kinds of decisions. But I believe Treasury is looking into it,” he said.

Freddie Mac and its cousin Fannie Mae were taken over by the government in 2008 to prevent their collapse in the financial crisis.

The crisis was triggered by the collapse of the mortgage-backed securities market, which went belly-up due to the proliferation of bonds tied to dodgy “subprime” loans.

[Image via Shutterstock.com.]

Agence France-Presse
Agence France-Presse
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